NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
December
31, 2019
(1)
BASIS OF PRESENTATION, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting
principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission
(“SEC”) regarding interim financial reporting and reflect the financial position, results of operations and cash flows
of the Company. Certain information and note disclosures normally included in the financial statements prepared in accordance
with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, these unaudited condensed consolidated
financial statements should be read in conjunction with the audited financial statements and accompanying notes included in the
Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2019, which was filed with the SEC on January 16,
2020. The results from operations for the nine-month period ended December 31, 2019, are not necessarily indicative of the results
that may be expected for the fiscal year ended March 31, 2020.
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts and the disclosure of contingent amounts in the Company’s financial statements and the accompanying
notes. Actual results could materially differ from those estimates.
Organization
and Nature of Operations
Sundance
Strategies, Inc. (formerly known as Java Express, Inc.) was organized under the laws of the State of Nevada on December 14, 2001,
and engaged in the retail selling of beverage products to the general public until these endeavors ceased in 2006; it had no material
business operations from 2006, until its acquisition of ANEW LIFE, INC. (“ANEW LIFE”), a subsidiary of Sundance Strategies,
Inc. (“Sundance Strategies”, “the Company”, “we” or “our”). The Company is engaged
in the business of purchasing or acquiring life insurance policies and residual interests in or financial products tied to life
insurance policies, including notes, drafts, acceptances, open accounts receivable and other obligations representing part or
all of the sales price of insurance, life settlements and related insurance contracts being traded in the secondary marketplace,
often referred to as the “life settlements market.” Since the Company’s inception its operations have been primarily
financed through sales of equity, debt financing from related parties and the issuance of notes payable and convertible debentures.
Currently, the Company is focused on the purchase of net insurance benefit contracts (“NIBs”) based on life settlements
or life insurance policies.
Significant
Accounting Policies
There
have been no changes to the significant accounting policies of the Company from the information provided in Note 2 of the Notes
to Consolidated Financial Statements in the Company’s most recent Form 10-K, except as discussed below.
Accounting
Treatment When the Company Holds NIBs
The
Company accounted for its investment in NIBs at the initial investment value increased for interest income and decreased for cash
receipts received by the Company and impairment losses. At the time of transfer or purchase of an investment in NIBs, we estimated
the future expected cash flows and determined the effective interest rate based on these estimated cash flows and our initial
investment. Based on this effective interest rate, the Company calculated accretable income, which was recorded as interest income
on investment in NIBs in the statement of operations. Our projections were based on various assumptions that are subject to uncertainties
and contingencies including, but not limited to, the amount and timing of projected net cash receipts, expected maturity events,
counter party performance risk, changes to applicable regulation of the investment, shortage of funds needed to maintain the asset
until maturity, changes in discount rates, life expectancy estimates and their relation to premiums, interest, and other costs
incurred, among other items. These uncertainties and contingencies are difficult to predict and are subject to future events that
may impact our estimates and interest income. As a result, actual results could differ significantly from these projections. Therefore,
subsequent to the purchase and on a regular basis, these future estimated cash flows were evaluated for changes. If the determination
was made that the future estimated cash flows should be adjusted to the point of a material change in revenue, a revised effective
yield was calculated prospectively based on the current amortized cost of the investment, including accrued accretion. Any positive
or adverse change in cash flows would result in a prospective increase or decrease in the effective interest rate used to recognize
interest income. Any significant adverse change in the cash flows that may have resulted in the recognition of an “other-than-temporary
impairment” (“OTTI”), and would be evaluated by the Company accordingly.
SUNDANCE
STRATEGIES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
December
31, 2019
We
evaluate the carrying value of our investment in NIBs for impairment on a regular basis and adjust our total basis in the NIBs
using new or updated information that affects our assumptions. We recognized impairment on a NIB contract when the fair value
of the beneficial interest was less than the carrying amount of the investment, plus anticipated undiscounted future premiums
and direct external costs, if any, and if there are adverse changes in cash flow.
Basic
and Diluted Net Income (Loss) Per Common Share
Basic
net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during
the periods presented using the treasury stock method. Diluted net loss per common share is computed by including common shares
that may be issued subject to existing rights with dilutive potential, when applicable. Dilutive common stock equivalents are
primarily comprised of stock options. Potentially dilutive shares resulting from convertible debt agreements are evaluated using
the if-converted method, and such amounts were not dilutive.
As
of December 31, 2019 and 2018, there were no options were outstanding.
New
Accounting Pronouncements
Adopted
During the Nine months Ended December 31, 2019
In
February 2016, the FASB issued ASU 2016-02 related to the accounting for leases. This pronouncement requires lessees to record
most leases on their balance sheet, while expense recognition on the income statement remains similar to current lease accounting
guidance. The guidance also eliminates real estate-specific provisions and modifies certain aspects of lessor accounting. Under
the new guidance, lease classification as either a finance lease or an operating lease will determine how lease-related revenue
and expense are recognized. The pronouncement is effective for the Company’s fiscal year beginning April 1, 2019, and for
interim periods within that fiscal year. The adoption of this standard did not have an impact on the consolidated financial statements
because leases are month-to-month and not material to the Company’s financial statements.
Not
Yet Adopted
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. ASU 2016-13 requires entities to report “expected”
credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss”
model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience,
current conditions, and reasonable and supportable forecasts. This ASU will also require enhanced disclosures relating to significant
estimates and judgments used in estimating credit losses, as well as the credit quality. The amendments are effective for the
Company’s fiscal year beginning April 1, 2020, including interim periods within that fiscal year. The Company is currently
evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements and results of operations.
SUNDANCE
STRATEGIES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
December
31, 2019
The
Company has reviewed all other recently issued, but not yet adopted, accounting standards, in order to determine their effects,
if any, on its results of operations, financial position or cash flows. Based on that review, the Company believes that none of
these pronouncements will have a significant effect on its financial statements.
(2)
LIQUIDITY REQUIREMENTS
The
accompanying financial statements have been prepared on a going concern basis under which the Company is expected to be able to
realize its assets and satisfy its liabilities in the normal course of business. Due to the fact that the Company is in the process
of seeking NIB investments to acquire as mentioned above, the Company has no current source of operating revenues. In order to
purchase NIBs, the Company will need to raise additional capital or secure alternative sources of debt financing.
Since
the Company’s inception on January 31, 2013, its operations have been primarily financed through sales of equity, debt financing
from related parties and the issuance of notes payable and convertible debentures. As of December 31, 2019, the Company had $16,217
of cash assets, compared to $579 as of March 31, 2019. As of December 31, 2019, the Company had access to draw an additional $5,105,492
on the notes payable, related party (see Note 5) and $3,000,000 on the Convertible Debenture Agreement (See Note 6). For the nine
months ended December 31, 2019, the Company’s average monthly operating expenses were approximately $99,000, which includes
salaries of our employees, consulting agreements and contract labor, general and administrative expenses and legal and accounting
expenses. In addition to the monthly operating expenses, the Company continues to pursue other debt and equity financing opportunities,
and as a result, a financing expense of $87,000 was incurred during the nine months ended December 31, 2019. As management continues
to explore additional financing alternatives, the Company is expected to spend an additional $80,000 to $350,000 over the next
12 months related to these efforts. Outstanding Accounts Payable as of December 31, 2019 totaled $754,220, and other accrued liabilities
totaled $765,706. Management has concluded that its existing capital resources and availability under its existing convertible
debentures and debt agreements with related parties will be sufficient to fund its operating working capital requirements for
at least the next 12 months from the issuance of these financial statements. Related parties have given assurance that their continued
support, by way of either extensions of due dates, or increases in lines-of-credit, can be relied on. As mentioned above, the
Company also continues to evaluate other debt and equity financing opportunities.
(3)
FAIR VALUE MEASUREMENTS
As
defined by ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”), fair value is the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. ASC 820 also requires the consideration of differing levels of inputs in the determination of fair values.
Those
levels of input are summarized as follows:
●
|
Level
1: Quoted prices in active markets for identical assets and liabilities.
|
|
|
●
|
Level
2: Observable inputs other than Level 1 quoted prices, such as quoted prices for similar instruments in active markets, quoted
prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which
all significant assumptions are observable in the market.
|
|
|
●
|
Level
3: Unobservable inputs that are supported by little or no market activity. Level 3 assets and liabilities include financial
instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques as well
as instruments for which the determination of fair value requires significant management judgment or estimation.
|
The
level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input
that is significant to the fair value measurement in its entirety.
SUNDANCE
STRATEGIES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
December
31, 2019
Between
May 2018 and July 2018, the Holders entered into agreements that completed a strict foreclosure transaction that transferred the
underlying life insurance policies relating to the Company’s NIBs to the lenders in full satisfaction of the loan obligation.
As a result of the foreclosure, the Company has lost its position in the residual benefits of the policies and has reduced both
the fair value and the carrying value of the NIBs at March 31, 2019 to zero.
The
Company did not have any transfers of assets and liabilities between Levels 1, 2 and 3 of the fair value measurement hierarchy
during the nine months ended December 31, 2019.
Other
Financial Instruments
The
Company’s recorded values of cash and cash equivalents, prepaid expenses and other assets, accounts payable and accrued
liabilities approximate their fair values based on their short-term nature. The recorded values of the notes payable and convertible
debenture approximate the fair values as the interest rate approximates market interest rates.
(4)
STOCKHOLDERS’ EQUITY
Effective
December 6, 2018, three existing stockholders have contributed to the Company a portion of their common shares held at a repurchase
price to the Company of $0.05 per share. The Company has cancelled the acquired shares, which decreased the outstanding common
shares on the books of the Company. The total number of common shares canceled/retired was 8,000,000. The total liability related
to the repurchase of these shares is $400,000, with repayment contingent on a major financing event.
On
July 11, 2018, the Company issued 800,000 common shares in return for obtaining the remaining 27.8% ownership of certain NIBs.
The transaction was recorded at $17,840, the estimated fair value of the common stock issued (which management believes approximated
the fair value of the NIBs received on the date of the transaction). The additional NIBs acquired were reflected as an increase
to the Investment in NIBs account, and the NIBs were immediately impaired on the date of the transaction, bringing the total impairment
recognized on the NIBs to $22,967,966 plus $1,936,311 of impairment on accrued interest receivable.
On
November 5, 2019, in conjunction with an agreement to extend the due date of his promissory note (see Note 5) the Company agreed
to provide Mr. Dickman warrants for 450,000 shares of common stock at an exercise price of $0.05 per share. The warrants have
a 5-year exercise window from the date of the extension agreement. The value of the warrants on the date of grant, as calculated
by the Black-Scholes-Merton valuation model, was not significant. The inputs used in this calculation included a risk-free
rate of 1.66%, volatility of 27.29% and a dividend rate of 0%. As of December 31, 2019, the weighted average remaining life
of the warrants is 4.85 years.
(5)
NOTES PAYABLE, RELATED PARTY
As
of December 31, 2019, and March 31, 2019, the Company had borrowed $2,220,508 and $1,672,008 respectively, excluding accrued interest,
from related parties.
As
of December 31, 2019, and March 31, 2019, the Company owed $596,000 and $450,000, respectively, under the unsecured promissory
note from Mr. Glenn S. Dickman, a stockholder and member of the Board of Directors. This promissory note bears interest at a rate
of 8% annually. On November 5, 2019, the Company agreed to amend the agreement to extend the due date on the promissory note from
August 31, 2020 to November 30, 2021 or at the immediate time when alternative financing or other proceeds are received. In addition,
the Company agreed to provide Mr. Dickman warrants for 450,000 shares of common stock at an exercise price of $0.05 per share.
The warrants have a 5-year exercise window from the date of the extension agreement. During the nine months ended December 31,
2019 the Company borrowed $146,000 of principal under this agreement and made no repayments. As of December 31, 2019, accrued
interest on this note totaled $51,884. In the event the Company completes a successful equity raise, all principal and
interest on this note are due in full at that time.
SUNDANCE
STRATEGIES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
December
31, 2019
As
of December 31, 2019, and March 31, 2019, the Company owed $795,000 and $392,500, respectively, exclusive of accrued interest,
under the note payable and line of credit agreement with the Chairman of the Board of Directors and a stockholder. The agreement
allows for borrowings of up to $4,600,000. Subsequent to December 31, 2019 the note and the line of credit was extended
from November 30, 2020 to August 31, 2021 (see Note 7 for detail on the due date extension). The note payable
incurs interest at 7.5% per annum. During the nine months ended December 31, 2019 the Company borrowed $402,500 of principal under
this agreement and made no repayments. As of December 31, 2019, accrued interest on this note totaled $54,344. In the event the
Company completes a successful equity raise, all principal and interest on this note are due in full at that time
As
of December 31, 2019, and March 31, 2019, the Company owed $829,508, exclusive of accrued interest, under the note payable and
lines of credit agreement with Radiant Life, LLC, an entity partially owned by the Chairman of the Board of Directors. The agreement
allows for borrowings of up to $2,130,000. On December 19, 2019, the Company agreed to amend the agreement to extend the due date
on the note payable and line of credit agreement from November 30, 2020 to August 31, 2021 or at the immediate time when alternative
financing or other proceeds are received. The note payable incurs interest at 7.5% per annum. During the nine months ended December
31, 2019 the Company neither borrowed nor repaid any principal under this agreement. As of December 31, 2019, accrued interest
on this agreement totaled $133,238. In the event the Company completes a successful equity raise, all principal and interest
on this note are due in full at that time.
The
interest associated with the Notes Payable, Related Party of $239,466 and $113,981 is recorded on the balance sheet as an Accrued
Expense obligation at December 31, 2019 and March 31, 2019, respectively. There are no covenants associated with any of these
three agreements.
(6)
CONVERTIBLE DEBENTURE AGREEMENT
The
Company has entered into an 8% convertible debenture agreement with Satco International, Ltd., that allows for borrowings of up
to $3,000,000. The holder originally had the option to convert the outstanding principal and accrued interest to unregistered,
restricted common stock of the Company on June 2, 2016. Per the agreement, the number of shares issuable at conversion shall be
determined by the quotient obtained by dividing the outstanding principal and accrued and unpaid interest by 90% of the 90 day
average closing price of the Company’s common stock from the date the notice of conversion is received; and the price at
which the Debenture may be converted will be no lower than $1.00 per share. The original maturity date was June 2, 2016, but was
later extended, through a series of extensions, to August 31, 2019. On October 29, 2019, the Company agreed to amend the 8% Convertible
Debenture Agreement and extended the due date and conversion rights to December 1, 2020. As of December 31, 2019 and March 31,
2019, the Company owed $0 under the agreement, excluding accrued interest. The associated interest of $124,225 is recorded on
the balance sheet as an Accrued Expense obligation at December 31, 2019 and March 31, 2019.
(7)
SUBSEQUENT EVENTS
Subsequent
to December 31, 2019, the following events transpired:
On
January 8, 2020, the Company agreed to amend the agreement to extend the due date on the note payable and line of credit agreement
with the Chairman of the Board of Directors and a stockholder. The due date was extended from November 30, 2020 to August 31,
2021 or at the immediate time when alternative financing or other proceeds are received. In addition, the Company agreed to provide
the Chairman with warrants for 500,000 shares of common stock at an exercise price of $0.05 per share. The warrants have a 5-year
exercise window from the date of the extension agreement.
On
February 4, 2020, the Company borrowed $230,000 in conjunction with an additional promissory note agreement entered into with
Glenn S. Dickman. In addition, the Company agreed to provide Mr. Dickman warrants for 752,000 shares of common stock at an exercise
price of $0.05 per share. The warrants have a 5-year exercise window from the date of the extension agreement.
Subsequent
to December 31, 2019, the Company has borrowed an additional $323,500 (inclusive of the $230,000 borrowed on February 4, 2020,
mentioned above) on the Notes Payable, Related Party lines of credit agreements and promissory notes. As of February
19, 2020, the outstanding principal balances of all Notes Payable, Related Party totaled $2,450,508 and the outstanding principal
balance of the Convertible Debenture is zero. $1,624,508 of the outstanding principal is currently due on August 31,
2021 and the remaining $826,000 is due on November 30, 2021. In the event the Company completes a successful equity raise, all
principal and interest on these notes is due at that time.